Con Schemes Abound, Part Two

By Karen J. Tierney, CFE, CPA, CVA, CIA

Both the savvy and naïve are eligible prey to new business con schemes. Consumer education is the greatest weapon in the war against the pervasive scammers.

In the January/February 2003 issue, we reviewed general red flags of con schemes, how fraudsters execute them, effects on consumers, and some investment schemes. In this second and final adapted excerpt from the ACFE's "Investment Swindles and Con Schemes," we examine new business frauds.
Businesses, religious groups, and non-profit groups of all sizes and types are the targets of a number of special schemes.

Domain Name Registration
Scammers target potential Web site owners by offering, for an advance fee, to pre-register their businesses to one of the new top-level domain names, which include extensions ending in .aero, .biz, .coop, .info, .museum, .name, and .pro instead of .com or .org. Of course, they take the money and run.

In another scam, fraudsters - posing as "domain name monitoring" firms - send warning faxes or e-mails labeled "URGENT NOTICE OF IDENTICAL DOMAIN NAME APPLICATION BY A THIRD PARTY." The warnings claim that third parties, acting in bad faith, have applied for domain names almost identical to theirs and have already submitted the names to the National Domain Name Registry (NDNR). The scammers tell the businesses that they can stop the registry applications by immediately purchasing all the variations of their domain names from the monitoring firms.

In a recent case, the Federal Trade Commission (FTC) asked a U.S. district court judge to halt a domain-name poaching scam that duped, at a minimum, 27,000 consumers into needlessly registering variations of their existing domain names. At the FTC's request, the court issued a Temporary Restraining Order, froze the defendants' assets, and shut down their Web sites. The FTC asked the court to bar the scheme permanently and order consumer redress.

According to the FTC, consumers - many of them operating small businesses on the Internet - had received unsolicited fax solicitations stating the typical urgent notice warning. The solicitation listed four reasons someone might want to register a copycat domain name with the NDNR, including "disrupting the business of a competitor," or intentionally attempting to lure someone's customers by creating a confusingly similar Web address. The fax solicitation offered to block the application by obtaining the copycat domain name for $70. It warned that, if the consumer fails to act, "NDNR WILL NOT BE LIABLE FOR THE LOSS OF DOMAIN NAME LICENSE, IDENTICAL OR CONFUSINGLY SIMILAR USE OF YOUR COMPANY'S NAME; OR INTERRUPTION OF BUSINESS ACTIVITY OR BUSINESS LOSSES."

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